Pension funds hungry for investment risk
21 November 2014 Boston
Image: Shutterstock
Pension funds will see an increase in appetite for investment risk over the next three years, according to a report by State Street.
The report found that 77 percent of pension funds expect their appetite for risk to increase, enabling them to meet long-term liabilities and deliver optimal value for members in a low interest environment.
In contrast, only 20 percent of asset owners expect their risk appetites to increase in this period.
Pension funds expressed interest in increasing exposure to alternatives, with 60 percent saying they intend to increase exposure to private equity, 45 percent intending to invest in real estate, and 39 percent saying they may opt for infrastructure investment.
Of the hedge funds, 29 percent said they plan to increase exposure to single managers, while 3 percent will decrease allocation. For fund of hedge funds, 20 percent will increase allocation, 3 percent will reduce, and 27 percent intend to invest for the first time.
Oliver Berger, senior vice president and head of strategic marketing initiatives for EMEA at State Street said: “Pension funds are under huge pressure at the moment. With increased market volatility, they are faced with challenging and complex liabilities.”
“To achieve the returns they need, they have to take on more risk. However, they are better equipped than ever before to do this. With improvements in data mining and management and reporting, fund managers and asset owners have a better understanding of the risk reward profile of investments.”
Of the 134 respondents, 42 percent were from the Americas, 22 percent were from Europe, the Middle East and Africa (EMEA) and 34 percent were from the Asia-Pacific region (APAC).
Private equity emerged to be of the most interest in the Americas, with 68 percent planning to increase allocation in this area, compared to 60 percent in EMEA and 5 percent in APAC.
Hedge funds were more popular in the APAC region, with 57 percent increasing allocation, compared to 21 percent in both EMEA and the Americas.
The APAC region also showed most interest in real estate allocations, with 57 percent increasing allocation, compared to 45 percent in the Americas and 40 percent in EMEA.
The survey was conducted by the Economist Intelligence Unit on behalf of State Street. Of the participants, 52 percent were from public sector pension funds, 31 percent were from private sector pension schemes and 16 percent represented superannuation funds.
The report found that 77 percent of pension funds expect their appetite for risk to increase, enabling them to meet long-term liabilities and deliver optimal value for members in a low interest environment.
In contrast, only 20 percent of asset owners expect their risk appetites to increase in this period.
Pension funds expressed interest in increasing exposure to alternatives, with 60 percent saying they intend to increase exposure to private equity, 45 percent intending to invest in real estate, and 39 percent saying they may opt for infrastructure investment.
Of the hedge funds, 29 percent said they plan to increase exposure to single managers, while 3 percent will decrease allocation. For fund of hedge funds, 20 percent will increase allocation, 3 percent will reduce, and 27 percent intend to invest for the first time.
Oliver Berger, senior vice president and head of strategic marketing initiatives for EMEA at State Street said: “Pension funds are under huge pressure at the moment. With increased market volatility, they are faced with challenging and complex liabilities.”
“To achieve the returns they need, they have to take on more risk. However, they are better equipped than ever before to do this. With improvements in data mining and management and reporting, fund managers and asset owners have a better understanding of the risk reward profile of investments.”
Of the 134 respondents, 42 percent were from the Americas, 22 percent were from Europe, the Middle East and Africa (EMEA) and 34 percent were from the Asia-Pacific region (APAC).
Private equity emerged to be of the most interest in the Americas, with 68 percent planning to increase allocation in this area, compared to 60 percent in EMEA and 5 percent in APAC.
Hedge funds were more popular in the APAC region, with 57 percent increasing allocation, compared to 21 percent in both EMEA and the Americas.
The APAC region also showed most interest in real estate allocations, with 57 percent increasing allocation, compared to 45 percent in the Americas and 40 percent in EMEA.
The survey was conducted by the Economist Intelligence Unit on behalf of State Street. Of the participants, 52 percent were from public sector pension funds, 31 percent were from private sector pension schemes and 16 percent represented superannuation funds.
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